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    Why Microsoft Will Try Again for Yahoo in 2009

    By
    Chris Preimesberger
    -
    August 4, 2008
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      Now that the annual shareholders meeting is over, the attendees have been “Yanged” and headed back home, and the corporate propaganda machine is taking a vacation, what’s next for Yahoo and its embattled leadership?
      CEO and co-founder Jerry Yang–who is adept at calming investor nerves and charming analysts and media types alike, thus the “Yanged” observation–will tell you that things are looking up big time, because the company “offers a total Web platform that is unmatched anywhere.”
      Chairman of the Board Roy Bostock’s answer will be in typical executive-speak: “We now look forward to executing on our strategy and continuing to build our great company. Yahoo has made significant strides in executing on its strategy [in the last year], performing particularly well in light of the challenging circumstances of the past six months.”
      But ask Eric Jackson, president of one of the company’s biggest investors, Ironfire Capital–which owns about 3.2 million shares–and you get a very different take.
      “The company needs to make some fundamental changes if it’s going to improve its performance and stock price. Yahoo is too bloated right now; they need to reduce head count, focus on core businesses and divest some of their holdings that aren’t making any money,” Jackson told me after the meeting. “But it’s only about the second inning [of the company comeback], although it’s been the second inning for a long time. There have been a lot of pitches and foul balls.”
      Jackson said people should go back and read the November 2006 “peanut butter memo” written by Brad Garlinghouse, Yahoo senior vice president of communications, communities and front doors, and published in the Wall Street Journal. Here’s an excerpt:

      “I’ve heard our strategy described as spreading peanut butter across the myriad opportunities that continue to evolve in the online world. The result: a thin layer of investment spread across everything we do, and thus we focus on nothing in particular. … I hate peanut butter. We all should.”
      “That came out almost two years ago, but it’s as fresh today as it was back then,” Jackson said. “They’ve been doing stuff, but obviously most of those criticisms are still valid today. It’s going to take a lot of work [to get back on track] and new leadership–and preferably from the outside.”
      Jackson, Garlinghouse and billionaire investor Carl Icahn–the key promoter of the failed Microsoft takeover–aren’t alone in thinking that big changes have to come for Yahoo to regain the glory it had in the pre-bubble days, when its stock was in the $80 to $100 range. But they were unable to rally the support of enough additional shareholders to make any changes on the board and at the CEO position this year.
      Icahn will be replacing resigning board member Bobby Kotick in a few weeks, and two other positions on the board will be decided upon within that same time frame.
      Over the next year, the new 11-person board will need to re-examine the company’s overall focus, take a close look at head count, and decide how to refine or dispose of some products so that they don’t compete with each other in the open market.
      Another Microsoft Takeover Attempt in the Works?
      They also may have to deal with another overture from Microsoft, if one believes Jackson.
      “We overplayed our hand with Microsoft. Yes, it would have been a great deal for the shareholders and for the company,” he said. “We should have taken the deal [at $31 per share, or about $47 billion in cash]. Obviously, they [the board] disagree with what I think, but this doesn’t surprise me. They think a poison pill is a good idea. … But I don’t think it’s completely dead. I believe … [Microsoft] will come back around next year and try again.”
      Why?
      “I believe it is simply due to Microsoft’s weakness in its Online Services Division. You look at their last quarter’s numbers for that group, and it’s clear that they are falling further behind. Their desktop business also showed deceleration. Yahoo helps with both problems,” Jackson said.
      Microsoft has been trying the go-it-alone-and-hire-more-engineers approach for 12 years, Jackson said. “It’s not working and will not catch Google.”
      He added an anecdotal reason why he believes this.
      “I had never used Microsoft search before a couple of weeks ago. I sat down to try it and then realized I had no idea what to type in. I tried Microsoft.com, but the only search bar was to help me search MSFT internal directories. I then remembered seeing some advertisement for ‘Live Search,’ so I tried Livesearch.com. It was some spam site. Finally, I tried Live.com, and the results were no good. I will never use it again. When I want to Google or find Yahoo, I know what to punch in. Simple as that,” Jackson said.
      Keeping It Simple Works Wonders
      On the Internet, simplicity cannot be overstated. Yahoo and Google both have mastered the ostensibly “simple” act of searching the Web. Thus, they continue to run away from the competition.
      Yahoo purports that at any given time on the Internet, about 12 percent of all Web surfers are on a Yahoo-owned page. How anyone can possibly figure that out is beyond my comprehension, but that’s what its salespeople tell potential advertisers.
      There’s no question that the company still is a media giant with which to be reckoned. However, by all accounts, 2009 looks to be a crucial year for Yang, Bostock, President Sue Decker & Co. as they forge ahead with improving products, services, profits and stock prices.
      Can they do it? Certainly. Will they do it? That’s anybody’s guess.
      If the company doesn’t perform, Jackson, Icahn and the other dissidents will have another year’s worth of ammo in their weapons when they come gunning for the top executives again next August. You can bet they won’t stand to being “Yanged” once again.

      Chris Preimesberger
      https://www.eweek.com/author/cpreimesberger/
      Chris J. Preimesberger is Editor Emeritus of eWEEK. In his 16 years and more than 5,000 articles at eWEEK, he distinguished himself in reporting and analysis of the business use of new-gen IT in a variety of sectors, including cloud computing, data center systems, storage, edge systems, security and others. In February 2017 and September 2018, Chris was named among the 250 most influential business journalists in the world (https://richtopia.com/inspirational-people/top-250-business-journalists/) by Richtopia, a UK research firm that used analytics to compile the ranking. He has won several national and regional awards for his work, including a 2011 Folio Award for a profile (https://www.eweek.com/cloud/marc-benioff-trend-seer-and-business-socialist/) of Salesforce founder/CEO Marc Benioff--the only time he has entered the competition. Previously, Chris was a founding editor of both IT Manager's Journal and DevX.com and was managing editor of Software Development magazine. He has been a stringer for the Associated Press since 1983 and resides in Silicon Valley.
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